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EP 383 – Note Market Trends with Kevin Shortle

You got to be able to pivot a little bit with your business, whether it’s being a little more focused on the real estate side, the distressed side, or the owner finance side of terms. Longtime note and real estate investor Kevin Shortle from ProSpeak Productions says we still have a lot of untapped opportunities out there, but you have to have that depth of knowledge to continue on. Scott talks with Kevin about what’s going on in the current note market.

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Note Market Trends with Kevin Shortle

We’ve got a special guest on this episode. We’re honored to have Kevin Shortle from ProSpeak Productions. He began his real estate career in 1985 as a commercial real estate appraiser. That strong foundation of understanding how to value a property would be a key asset as he advanced into writing for a real estate development magazine. He started his own real estate brokerage and becoming a full-time investor. He’s involved in both the real property side and the paper side of real estate investing. Kevin, how’s it going?

It’s going great. Thanks for having me on. I appreciate it.

Why don’t you share what you’ve been up to? You’ve made a little bit of transition in the last few months. I see the podcast. I’ve been listening to it and loving it. You’re tackling some of the bucket list, the to-do list that you’ve wanted to do for a while.

I’ve been teaching for a few years and thinking about some different directions and trying to find out what are the needs in the industry and what I can do to fill some of those needs. I’m going a slightly different direction. I’ve gone all the way from personal consulting with people who want that extra handholding all the way up to doing three-day training still. Not quite as much as I used to do, but there are some niches there and some people are getting a little concerned about inventory. We’re in a little bit of a transition here and I could help people through that as I’m sure you are helping people with it.

I still see plenty of opportunities out there. You’ve got to be able to pivot a little bit with your business, whether it’s being a little more focused on the real estate side or being more focused on the distressed side and be more focused on the owner finance side of terms. Where do you think the opportunities are lying out there for people?

We still have untapped opportunities. It’s going through a little bit of a fluctuation and I’ve seen this before. I wrote my first book on this business back in 1999. I’ve been around a while. I’ve seen a couple of cycles go through. Even the regular real estate world I saw in Florida. There are a couple of years in the early 2000s where if you lift the floor it’s always mandatory to have a real estate license because everybody was in it. Everybody was selling houses and it was easy to do. All of a sudden, inventory shifts and then you saw who knew the business. You only saw the people who had the knowledge, the skill in the industry and the rest faded away. You’re going to see that in the note business. A lot of people don’t know about the note business, but it was easy. Go online, click and buy. Now, it’s going to get it a little bit tighter where you have to have that depth of knowledge to continue on.

I’m thinking back in the ‘08, ‘09 era here in Austin, Texas, there were 12,000 realtors. You couldn’t throw a rock without hitting three of them trying to help you list your house. Then literally two-thirds of the realtors went away and two-thirds of the mortgage brokers because if you fog a mirror, you can start writing mortgages. It’s the rats leaving the feces basically for the most part.

Note Market Trends: More and more people are starting to recognize notes as real estate.

We’re going through a transition with the nonperforming loans because if you look at the biggest buyers of the inventory, it’s still Goldman and their subsidiaries buying that. They’re holding that paper a little longer because they want to get those reperforming so they get the benefit from the debt forgiveness for the lawsuit. There are things going on in the industry and we’re going to see that again, the same thing with the performing loans. We’re going to see a resurgence of some of the nonperforming a few months for sure after they seize those up a little bit. The performing notes, you have a lot of REO companies and such that created a bulk of that by going out and buying the properties and reselling them. They’re going to continue to do that. A lot of end of year funds, they’re closing out the funds. They’re getting amped up for next year and it’s going to cycle all over again.

You throw in the addition of the new non-prime lenders that have been writing a paper for the last couple of years. I’ll give you an example, we’ve got a couple here in the office going, “Are you doing 97%?” He goes, “100%.” “What kind of FICOs?” “500.” I’m like, “Are you selling them off?” They go, “We’re holding onto them.” I’m like, “Take my card because when they go default, you’re going to want to sell some to somebody.”

You had said something on LinkedIn or Twitter on an article that I wrote. You had written one as well and I looked a little different direction on some things. It’s downright frightening. It’s like we didn’t learn anything at all. They’re doing 500. If you look at that Mortgage Monitor came out again with Black Knight Financial Services, guess which ones have the biggest delinquencies? The FHA-insured loans and the private loans, the non-banks not qualified. It makes sense and it’s unfortunate. They’re setting people up for failure on some of these loans as they did before. It’s future inventory for us, probably not the best thing for the economy but it seems we don’t learn and it’s going that direction on the nonperforming again.

It’s the same broken record several years later out there. There’s an opportunity there and with the increased interest rates and other things going on, we’ve got some things to worry about. Especially if you look at different parts of the market out there, they’ve recovered and then get a lot of people buying homes for the first time especially new homes. They’re not taxed. They don’t have the right appraisal districts, so they’re not taxed properly the first year. That’s one of the biggest default rates we see, especially here outside of Austin. Many years ago, there are areas called Del Valle with all new homes. You’re $500 down. They came in and then several months later when the tax appraisal came on reevaluating them for the true value versus the lot value, it was 90% default across the board. People weren’t budgeting for that tax increase. We see that all across the country in different parts. I see those big billboards. You’ve got $500 down and I’m like, “Let me make a note of these address.”

It’s common and a good byproduct that I like out of this whole thing is more and more people are starting to recognize notes as real estate. There’s the real estate, there’s the note thing, and there’s been a divide in a lot of people’s minds that they’re two different worlds. They’re not. It’s the financial side of real estate. A lot more investors combining real estate techniques with real estate financing or real estate note techniques because that’s going to make you a better overall investor without a question. That’s where you can handle all these minor fluctuations in the industry, including the one we’re looking at.

I focus on buying debt, that’s one of my biggest things. My exit strategies, I’m flexible. However, I have to move it whether it is selling traditionally or on terms or owner financing or wholesaling. It’s good to know those exit terms, but those that get focused on one thing and one thing only, they’re the ones that get the most amount of trouble not being able to shift or pivot a little bit as the market changes.

I’ve been saying for a long time in the training that I do to never go into one of these deals with one out. You might get lucky a couple of times, “I’m doing this and it’s going great.” You better take a look at four or five different outs, weigh all the numbers and make sure that you’re protected. I’m sure we’re similar in the fact that when we look at note deals, it’s risk first then yield. Many people just yield, especially in the performing world. It’s not about yield initially, it’s about the risk that you have on that because things can go bad. Worst case scenario happens and you’re prepared for that and you still make money, you’ve effectively eliminated or reduced your risk.

You’ve been training and talking to people for years, what are some of those key points that you see with people that have success in the note industry? Are they coachable? Are they flexible? What are the characteristics of successful investors out there that you see?

Coachability is a huge factor. In fact, when I’m doing training live and I’ve written this in a blog as well. I even went to a psychological study that outlined this. Is it better to handwrite notes versus typing your notes? What happens with retention levels? Are you receptive to that? Without fail, you do have to open yourself up to coaching. I’ve seen in the past and you may have seen this as well we’re going to get training to people. They’ve got all the advantages. They’ve got some capital to get going. They’ve got some real estate background, some financial background. They’re sharp. I go, “They’re going to take off and run.” Then you see other people who are going, “They’re starting. It’s going to be rough.” They don’t have the capital to get going but they’ve got ambition. They have the desire to do some things.

Most of the time, the people that do better are the ones that had the ambition. The ones that were willing to learn and go out there and do as you instructed versus the ones who never got around to it because they had everything working in their favor. For those of you who are looking at starting in the business, follow the proven plans that most successful people in the business have done. I also have had some of the most advanced people who do really well in the business. They’ll come back and I’ve gone up to them a couple times going, “At some point, I’ve got to be boring you with this example.” Part of the business is the business. You have to teach the core component. Every time I listen to something or see something new, it takes my business a slightly different direction.

I call it the absorbance factor because if you’re brand new, especially there are many different terms and different ways of looking at the note business versus property. We don’t always absorb things the first time around. I’m a little thick headed. Sometimes it takes three or four times for things to finally kick in.

The simple things like verbiage. Most people would either bring that up, but you’ve got to understand the tempo of the business, the flavor of the verbiage and the business. The only way you can do that and shorten the learning curve is you’ve got to get on your podcast. You’ve got to go out and go to some of these conventions. You’ve got to start to meet people. You’ve got to see what successful people have done and simply model your business behind that. It’s been the only proven way to shorten up a learning curve that there is.

You’ll learn from those that have taken the step before you. Success factor’s a whole lot faster versus trying to go out and reinvent the wheel. There’s a reason that we do things the way we do.

You learn through the experience of other people and whether that was a good result or bad. One of the things that can be a big momentum killer in this business and for some people it happens on their first deal. Some people it happens, later on, are they make a mistake that sets them back. You could have avoided those mistakes but thinking about the exit strategy. Make sure you checked all your due diligence. Don’t start to cut corners on things. Listen to what other people have learned through experience. That will save you. It’s tough when somebody hits one of those bad deals. I’m sure you’ve gotten these questions before too. It’s like, “Here’s what I did. Was that wrong? Should I have not done that?” It’s like, “Talk to me anytime. Let’s talk these things through before you go out there and make a mistake that can send you back.”

Note Market Trends: Everybody started with a small audience at some point in time and let it grow.

It’s okay to call me. I’m not going to chew your head off. Trust me. I’m going to try to save you. That’s what I love about the note industry. It’s much more of a welcome, warmer environment because it is a smaller space versus the wholesalers, the fix and flippers, traditional realtors, and mortgage brokers out there. They’re pretty cutthroat out there because I’ve been around those areas for a while. With the note space, it’s a lot friendlier. “Here’s a vendor to use.” “Did you check this or did you not check that?” Asking a couple of questions or asking for counsel is a better thing from those that have been down the road before.

Part of the other reason too there’s more reception in our industry is our inventory is not limited to a neighborhood. I’ve done a lot of real estates too and it was always location and know your neighborhood. You had designated areas and property types that you were looking for. In the note business, you start to put your banker hat on, your lender hat on then you go, “I can open this up anywhere.” You want to share with other people because you want them to share back at some point in time. Podcasts and blogs are great now for people because there’s much more sharing. When I was in more of the traditional real estate bricks and sticks, there were a lot of people like, “I’m not giving you my roofer guy, my painter. I want them for us.” My son was leaving a little bit to go, but back when you were young parents, you don’t want to give up your babysitter and tell your neighbors knew that was. They’re going to be out Friday night. You want to be out on Friday night thing. It’s a lot more protective right here, but in the note business we all want to share.

For those that have not listened to your podcast, I love some of the things you’re doing with it. Why don’t you talk a little about that? What’s been the biggest surprise from it? Everybody I talk about, there are some people that do well with it. You’re doing a great job and the people get started for it and they fall off the cliff of not following up with it. It’s one of the best ways to get the word out in what you’re doing and spread the word. I know you see the same power in that as well.

Going back to the beginning about a list I’ve had of doing. I started a couple of years ago. I did one episode and that took off. About a year later, I did one. If it’s not on my calendar and not on schedule, it doesn’t get done because I’m also writing blogs and monthly content and traveling. You can make a ton of excuses like I did on why I didn’t get the podcast done. I realized that. I even joke on my podcast about it. I don’t have the fancy intro yet and all this stuff. I just wanted to talk. I will eventually have that and build that a little bit better. It’s the information ultimately at the end of the day people are coming for. It’s opened up. People like you contacted me. I was podcasting from a live event in Raleigh. That ended up doing a radio show. I did another podcast with Mitch. I know Mitch has been on your show. It happens pretty quickly. I still got a small audience and that’s what also discourages people. They go, “I just got a few,” but everybody started with a small audience at some point in time and going to let it grow. I enjoy it. I like the format. You’re doing four different podcasts?

We have The Note Closers Show podcast. We have Note Night in America, that’s a podcast but an upload of the Monday night webinars we do most of the time. We have another podcast called Note CAMP, which is a replay of our Note CAMP Convention from a few months ago. I’m dabbling with the Furbabies Podcast that Stephanie is trying to get launched. I’m helping her, pushing her and producing that. You won’t see me being the cat guy or the cat girl.

I like the format too because you download it and you can listen to it from anywhere. I try to walk every morning and put the podcast on, learn some new things.

We’ve been getting people from not only all across the country but 68 countries now. People are responding. A while back I posted up, “If you’re an international, send me a flag.” I have flags chilling out from across the world from people listening.

I also had two different countries and I’m going, “How did that even happen?”

What opportunities do you see happening in 2019? As we come to the end of 2018 and then rolling to 2019, what opportunities do you see for investors out there?

There are a couple of different things. Two different directions and it depends on where somebody is starting. One for sure, I always look at the inventory levels with three different funnels, coming from the more traditional sources, through the big REO funds, through the big monthly sales spanning Friday stuff, the REO creating, performing, reperforming and what’s been largely ignored is the individual. I refer to this as mom and pop notes. If somebody owned a home, inherited a home and sold it, I think that’s inventory that’s been untapped and I believe that there’s enough there to go back old school. I remember literally sitting at the kitchen table with my wife, Kendra, folding letters, licking envelopes and putting stamps on letters to do direct mail to tap into that inventory. You don’t have to do that now. You can outsource all of that stuff, but there’s a big play to be made there. The second big one is still going to be and it’s going to continue to grow is that concept of combining real estate notes, which is acquiring real estate, hopefully through nonperforming notes to do it the right way. If you’re investing through foreclosures or what have you, for short sales, are going to be a possibility but selling with seller finance. Creating a note portfolio that you can sell partials of, that you can hypothecate, or borrow against. Those are going to be the two big areas.

There are a lot of opportunities out there. Being flexible on your exit strategies, especially if interest rates start increasing a little bit and as people don’t have the best credit but they’ve got the cash to put down. I’m a big believer if somebody’s got some cash to put down, I’ll overlook some hiccups in the past. Having a short sale, deep default or foreclosure in credit was like having a normal scar if you’ve lived if you were a homeowner or real estate investor through 2008 through 2010. It’s hard to get away from the house.

Down payment can overcome bad credit. A lot of people’s credit is starting to come out. We’re many years coming out of that where foreclosures and credit changing the rules have come off or taken off property taxes. If people don’t have good enough credit to get loans, let’s make them have better credit somehow. That’s been a part of it too, which I don’t like. At the same time with us in the note business, there are other variables. More of a down payment and some track record they might have from rent. It will overcome a lot because I don’t see Dodd-Frank and such changing the motivation for lenders to do traditional loans with that so-called lower pricing. The motivation is simply not there. The private banks are not a part of the Community Reinvestment Act, so they’re not doing those types of loans. That opens up the opportunity for us to fulfill a need in a marketplace that’s been ignored. That’s where you can take low band real estate and turn it into a nice passive return by combining those things.

Some of the bigger funds that bought a lot of the REOs, bought a lot of rental property portfolios and put people in them, they’re starting to move some of the portfolios off. They’re selling that stuff off at $0.80 on the dollar. I’m like, “If this has been such a great thing for you, why are you selling them off? What are you telling us? Are you seeing something that’s going to happen here in the next several months?” Bay View was selling a portfolio, the performing notes off that I noticed that they bought. Selling it all at $0.80 of UPB, I was like, “What are you telling us here? Do you see something? Are your quants giving you warning signs? Are you trying to dump it?” Most of the stuff they were picking out are $0.40, $0.50 or better and they have had it for a while. What are you seeing that you’re not telling us?

Is it something against seasonal or cashing out of one fund and to go in the different direction as well? I don’t have a great answer on that one for you either. They’re private companies so there’s not a whole lot of disclosure. I do research all the time, so Fannie and Freddie even get a better idea of what’s going on. With the solo private companies, you can’t. Maybe they’re following Carrington. Carrington got back into the lending business. That’s because there’s more money there. They only have 5% cash position in their portfolio and they’re borrowing warehouse lines of credit for 90%, 95% of the money. They’re doing those lower price band loads and making some pretty good bucks on that. It may be something that some of these other companies are starting to look to get back into that direction as well.

Note Market Trends: The rental market is still controlled by small investors. The big players haven’t been able to find a way to make that scale.

I’ve had some conversations with some of the guys that cashed out from the subprime market. They bought portfolios, they bought rental properties and their selling some of that because they see, “We’re going to get back into lending now. We can make more money lending now.”

When Wall Street recognized single-family homes as an investment class for the first time ever, they buy up all these properties and then try to rent them. Number one, they found out what a nightmare that could be trying to do that nationwide and then they switched over to, “We’ll finance them.” Once they got rid of those portfolios, the market had shifted and they got back into the lending business, which is more along the lines of what they understood. The rental market is still controlled by small investors. The big players haven’t been able to find a way to make that scale, certainly smaller investors can. In most cases, why rent when you can sell it with seller financing.

You’ve been working on a book to come out in 2019. Do you want to talk about that a little bit?

I wrote my first book in 1999. I followed it up with a smaller one a couple of years later. It’s time to do another one. I might have a slightly different direction too. It could be along the lines of where are the best techniques in real estate and real estate notes moving forward. I hope to have that completed. January 2019 is my target, but I’ve got to have it done by March 2019. I’m a little flexible on when the deliverable is. One of the cool things that I’ve done is I invited some other people that I’ve met throughout the year that have done well in the business, and they’re writing supplemental chapters in there. I’ll be writing the core of the business and here’s how it works, and then here’s proof of concepts or these other authors that are going to be writing a chapter in there. I thought that’d be a nice way to go.

It’s always good to get other people’s opinion on it. When it’s done, let me know. We’d love to have you back on and talk about it and help promote it out there as well for you. You’re also still teaching on a regular basis or semi-regular basis?

I’ve got a company called iNote Success. We’re starting to do some additional three-day training. I still think there’s a need for bigger training, not all investors need that. They want more personalized help. I’m trying to identify the various niches there, but that model still works whether you’re doing it live or whether you’re doing them online. It does take several days to learn that language and see the various case studies and understand the business. If it’s not extremely complicated, it’s just a learning curve. I like the idea of intensive training. Whether that’s in person or online, it would be effective either way.

You’ve got to be coachable and there are a lot of different moving parts. There are a lot of different terms, a lot of different things to structure the deals. It’s a different mindset coming from the side of a banker versus a fix and flipper, a wholesaler. It’s a lot of things to consider out there. When’s the next class you’re hosting?

The next class should be in California coming up in December. We’re already booking through January, February. iNoteSuccess.com is the website. I like the fact too that there’s a crossover. People have different alternatives now and should learn from people like you, people like me. We have a lot of people that we know that we’ve trained, co-trained and done things together and that’s important too. Learning the different ways or sometimes it’s a different approach. We might be saying the same thing, but it’s approached from a different angle and that’s what makes it happen there. There’s some good training out there.

How I say it is different sometimes and how you say it. People learn differently. People identify differently out there. I’m a big advocate of training and promoting other people. If you can find somebody local in person, great. If you can’t and you jump online, great. That’s the beautiful thing about technology these days. There are more opportunities to learn than there ever was before. You’ve got raving fans out there as well, which is part of the reason you’re on here. I was like, “I’ve got to reach out to Kevin, get him on, have him on the show as well.” Where can people reach out to get ahold of you, Kevin?

Go to my website. That’s where I have everything there. It’s KevinShortle.com and that’s where I’ve got everything. I’ve got a simple list you can sign up on and that way I can keep in touch and various things like to book and training events, anything else that I’m doing. Every time I put out another podcast or blog, I always try to let people know on Twitter and LinkedIn that we’ve posted some new things. That would be the best spot.

Keep doing what you’re doing. Love what you’re doing. It’s a good thing with the note industry. We’ve got some great people providing great content. You’re one of those guys out there doing as well. I want to say thanks for being here, for being a guest on the show.

Thanks, Scott. I do appreciate it. I’ll look forward to getting you booked on mine as well.

As Kevin said, “Go out and get some training.” Check out his podcast. Check out his blog. You can follow him online as well. A guy that knows his stuff and had been around a while, obviously doing some things. The great thing is that he’s producing and he’s delivering some great content out there for those in the note industry. Go out and take some action. We’ll see you at the top.

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About Kevin Shortle

With over 20 years of hands-on experience as an investor, national instructor, coach, consultant and author, Kevin excels at simplifying real estate and small business strategies through real-world examples and experiences that will have you on the edge of your seat and eager for more. In addition, his diverse background allows him to easily switch topics in a logical and progressive manner that will increase your understanding and your retention.

Kevin began his real estate career in 1985 as a commercial real estate appraiser. That strong foundation of understanding how to value property would be a key asset as he advanced into writing for a real estate development magazine, starting his own real estate brokerage and becoming a full-time investor.

He has purchased, renovated, and resold over 150 properties and has brokered over $30 million in private mortgage and note sales. Furthermore, he set up and manages a real estate syndication that provides private loans to real estate investors.

With this experience, he was brought on as a consultant to the nations premier rehab lender where he was able to help streamline processing and triple revenues. In addition to further assisting potential borrowers, he was also contracted to create over 20 hours of educational curriculum.